After cutting federal subsidies for the production of rental housing to a fraction of past levels, Congress has channeled much of the remaining assistance to three projects in Chicago. This move has drawn fire from the sponsors of projects that did not receive assistance, including one in Southeast Washington.
Thanks to lobbying by Chicago officials and the Illinois congressional delegation, the U.S. Department of Housing and Urban Development is providing $208.7 million in subsidized mortgage financing for three projects containing 2,864 apartments for moderate-income families in Chicago. Seven projects in other cities also were funded.
The money comes from $250 million appropriated by Congress in December for the Governmant National Mortgage Association targeted tandem program, which subsidizes federally insured mortgages for moderate-income apartment projects to bring the interest rate down to 9 3/4 percent. GNMA calls it a tandem program because it works with private lenders, who sell mortgages to GNMA.
Sponsors of projects that did not receive funding are criticizing a change in the system for allocating the tandem funds that insured funding for the Chicago projects. "I'm concerned about the arbitrary nature of the rules that were established for doling the GNMA money," said Thomas M. Zuniga, a housing development consultant who tried unsuccessfully to get the low-interest tandem financing to rehabilitate the 474-unit Benning Heights low-income cooperative in Southeast Washington.
The sponsors of the Chicago projects convinced Congress to change the tandem allocation system from the random lottery used in the past to a chronological system based on the date the developers obtained commitments for federal mortgage insurance. Three of the four projects at the top of the list are planned for Chicago, including Presidential Towers, a 2,346-unit project that will eat up $158.9 million of the mortgage funds.
Zuniga contended that the change in the allocation system and the selection of the Chicago projects was no coincidence. "I think the people formulating the rule knew what projects would or would not be funded," he said.
"The people who really need 9 3/4 percent financing are low-income people," not the moderate-income tenants of the projects funded through the chronological allocation, Zuniga said.
Carolyn Oakley, executive director of the District's housing finance agency, also questioned the procedure. "It doesn't take into consideration the nationwide need for housing," Oakley said. "It merely uses time when there are a number of other criteria which should be considered, including the need for the housing in the jurisdiction and other alternatives for financing."
One of the key lobbyists for the change was Carl A. S. Coan Jr., the Washington attorney who represents Presidential Towers developers. "The decision to go on chronological order was based on the thought that, with limited funds, we should fund first those projects which have been endeavoring to get funding the longest," Coan said.
Coan said he wasn't the only one arguing for the new funding and the chronological allocation system. "This was supported by the mayor, both senators, and most of the congressional delegation of Illinois," he said. "It was a bipartisan effort."
Other housing industry sources said Congress would not have provided any tandem money without the political clout behind the Chicago projects.
Eligibility for the 1983 tandem funds was limited to the 90 projects that competed for but didn't get funding in the last tandem-fund lottery a year ago. Only 25 of those projects--none from the Washington area--applied for the 1983 funds.
Zuniga said the Benning Heights project competed but was not chosen in the 1982 lottery and did not compete for the 1983 funding, largely because the date of its mortgage insurance commitment made its selection very unlikely.
He said the project was pushed even further down the list because of a HUD policy requiring projects not chosen in the lottery to find other financing. Zuniga said the cooperative let its mortgage insurance commitment expire because it had no alternative financing. The co-op reapplied when it appeared that more tandem funds would be available, receiving a later commitment date and pushing it even further down the list for the 1983 funding.
"I'm curious how the other projects stayed alive," Zuniga said, questioning why the successful projects kept their original mortgage commitments after they were not selected in the last lottery.
HUD Assistant Secretary for Housing Philip Abrams said sponsors of projects such as Benning Heights could have found other financing or taken other steps to make them feasible without letting their mortgage insurance commitments expire. He said projects that did so kept their original mortgage commitment dates for purposes of the 1983 tandem allocation.
"You have fewer financing options with a low-income project," Zuniga said. Moderate-income projects' sponsors could raise rent to make their projects feasible at higher interest rates, but a low-income project could not, he added.
Critics of the targeted tandem program have said it provides an unnecessary subsidy for moderate-income tenants and diverts resources from housing for low-income families. But Coan contended that the $158.9 million in subsidized financing for Presidential Towers will serve several important public purposes.
In addition to the $250 million available for the targeted tandem program, Congress provided $250 million for the Section 8 tandem program. Those funds will subsidize mortgage interest rates to bring them as low as 7 1/2 percent for projects in which 20 percent of the units will be occupied by low-income tenants receiving rent subsidies under the Section 8 program. Those projects will be chosen by a random lottery the first week of April.
The Reagan administration has proposed to end both the targeted and the Section 8 tandem programs after 1983.